When Firms Issue More Debt, the Tax Shield on Debt

question 13

Multiple Choice

When firms issue more debt, the tax shield on debt ____, the agency costs on debt (i.e., costs of financial distress) ____, and the agency costs on equity ____.

• A) increases; increases; increases
• B) decreases; decreases; decreases
• C) increases; increases; decreases
• D) decreases; decreases; increases
• E) increases; decreases; decreases

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Definitions:

Lacunae

Small cavities or spaces within tissues, particularly in bone and cartilage, where cells reside.

Epithelium

Tissue composed of layers of cells that line the cavities and surfaces of structures throughout the body, serving as a protective barrier or involved in absorption and secretion.

Small Intestine

Portion of the vertebrate digestive tract that extends from the stomach to the large intestine.

Lungs

Lungs are a pair of respiratory organs in the chest of vertebrates where blood is oxygenated.